Wall Street firms are expected to hand out bigger bonuses this year as investment banking, equity markets and fixed income trading make major rebounds, according to a survey.
Investment bankers helping companies issue debt are expected to see the highest bonus increases this year, from 15% to 25%, as companies sell record volumes of debt, according to financial services compensation firm Johnson Associates.
As initial public offerings come back, bonuses for equity underwriters are expected to rise 10% to 20% this year.
“We are seeing almost all segments on Wall Street raising compensation,” the firm’s founder, Alan Johnson, told Reuters.
“This should be a good year, although there are risks stemming from elections in the US and global conflicts.”
Although improving, incentives in investment banking are still far from their peak in 2021.
The only segment where pay is above the 2021 level is private equity, but the workforce at these companies is considerably smaller than in banks, Johnson said.
Higher trading volumes are expected to increase bonuses for bond traders between 10% and 20%, and 5% to 15% higher for equity traders.
Executives working in wealth management will probably have 5% to 10% higher compensation, whereas asset management and hedge fund employees are expected to receive 5% higher bonuses.
In asset management, although clients have been migrating from higher fee products to passive investment products with lower fees, the rise in stocks in 2024 has increased the volume of assets and profitability in the business.
Last month, the office of the New York State comptroller released a report showing that the average Wall Street bonus for 2023 was $176,500 — a 2% decline from $180,000 in 2022.
The 2% drop pales in comparison to the 25% decline in 2022, when the average bonus fell to $180,000 from $240,000 the previous year.
The smaller bonuses were paid out despite a 1.8% increase in overall profits on Wall Street in 2023, according to the office of Comptroller Thomas DiNapoli, which attributed the slight decline to more workers getting hired.
Last year, financial firms paid out the bonuses out of a pool that stood at $33.8 billion – which was around the same sum as the 2022 pool.
The $33.8 billion figure stood in sharp contrast to the $42.7 billion pool that was paid out in 2021, when Wall Street was flush with cash.
At the time, borrowing money was cheap. In the US alone, there were $1.8 trillion worth of mergers and acquisitions in the first eight months of 2021.
But soaring levels of inflation have forced the Fed to hike interest rates, creating uncertainty in the markets.
Bonuses are doled out at the end of the year and typically make up the majority of someone’s total compensation.
One in 11 people in New York is employed in the financial services industry, according to state figures. So changes in Wall Street’s compensation normally have reverberating effects on other sectors of the local economy.
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